Top 3 Questions Every Breakaway Advisor Asks – Part 1

June 8, 2017, by Larissa Marcontell Sonnen

Categories:

As breakaway transition consultants, we are often asked, “What are you hearing from wirehouse advisors these days? What’s on their mind?” For years, the breakaway conversation revolved around all the bad things that were pushing advisors out of the wirehouses and into the RIA channel. As the independent space has evolved, the narrative is slowly changing to all the positive things that are pulling advisors and motivating them to start their own RIAs (See “The Push vs. Pull for Breakaway Advisors”).

Regardless of what got them to the point to pick up the phone and call, there are typically three questions breakaway advisors initially ask us:

Should I stay?

Should I go?

If I go, how do I do it?

My goal is to address each of these questions in their own post, giving them their much-needed attention, as each is a critical decision for every breakaway advisor contemplating a move.

“Should I Stay?” or “Why Stay at a Wirehouse?”

The biggest reason most people don’t take action to improve their lives in just about any endeavor or profession, sadly, often just comes down to inertia. As the saying goes, “Better the devil you know than the devil you don’t.” Creating an RIA from scratch can result in many sleepless nights, stressing about the operational aspects of the transition, as well as the security of those ever-important client relationships. Some advisors may simply conclude that they’re just not willing to put themselves through the hassle.

Many advisors agree it can be a hassle doing business within the wirehouse, and that it seems a bulldozer is needed to crash through the bureaucratic walls of the institution to meaningfully grow. However, after a significant amount of time spent within those walls, they have learned their way around. While it may be strained, they usually have a decent, workable relationship with their local branch manager. For the most part, they are left alone and the advisor can basically do what they want.

These advisors tend to call us when their frustrations have recently spiked – the payout grid has been changed once again, and never in the advisor’s favor; they’ve been asked once again to focus on their short-term sales numbers; they’ve been pressured into selling proprietary products that the advisor doesn’t believe are in their clients’ best interest. Other pain points come from their overbearing and non-service focused Compliance department. After sitting on it for two weeks, Compliance has rejected yet another timely commentary to their clients, describing recent volatility in the market and expressing the advisor’s guidance on how to best position portfolios. Or maybe technology in the branch office has broken down yet again, with no commitment by the firm to finally upgrade it, while at the same time a new hire to support the advisor and their team has been rejected by management due to another hiring freeze – the list can go on and on.

Once the boiling blood settles, the wirehouse advisor and his/her partners start to dream of a better way. And here is where the bulk of the questions come from as they ponder how to migrate their clients into an independent business model with the advisor also playing the role of business owner. Hiring and firing decisions are now the responsibility of the advisor. Compliance is now a process the advisor has to manage, and technology, while far superior in the independent space than inside the wirehouses, now becomes key to running their business and requires oversight and maintenance. Adding to the list of tasks are all of the fine points that come with being an employer, such as insurance coverage, both from an E&O/D&O and Worker’s Comp perspective, as well as health insurance benefits for employees. Breakaway advisors have to be prepared to wear all these hats, and to be comfortable with each hat, as this is the advisor’s firm, thus the advisor’s responsibility to make sure each of these elements are handled properly.

The good news is, with the growth of the independent space, there are many customized resources breakaway advisors can tap into to make these issues more than manageable (more on this later).

Further concerns potential breakaway advisors have are to think about the operating expenses of the business – office rent, technology, and employee salaries often can range around 25% of revenues as part of the overhead of any business. In the meantime, upfront costs will be required to get the business up and running, prior to any revenues coming in the door.

When launching an RIA, as opposed to joining a competing wirehouse, there is no signing bonus handed to the advisor on the first day of their new venture. To get started, the new firm will need to secure real estate, furnish the office space, purchase computers with cloud-based servers, and float the operating expenses of the business for the first 3 – 6 months before the majority of client assets have transferred and the business can reach its first full billing cycle.

For many advisors, these seem like insurmountable obstacles and while it may be fun to dream of entrepreneurship, this reality ultimately doesn’t appeal to the average advisor who decides to remain in his/her seat wearing their employee hat. There is nothing wrong with this outcome, it simply isn’t their cup of tea. They choose the “stay” route.

But for a select few, these challenges aren’t viewed as headaches or obstacles, but as opportunity. This is their opportunity to service clients with the exact products and services they have always dreamed; this is the opportunity to park that bureaucratic-blasting bulldozer forever and run a nimble business that can implement change as quickly as the owners can envision them. This is the opportunity to build a lasting legacy, with true equity value, that can be passed to next gen partners or family members. For these advisors, they begin to seriously consider the next question on the wirehouse advisor’s mind: “Should I go?”